Behind the low economic growth

(VOV) - Vietnam achieved a GDP growth rate of just 4 percent in the first quarter of this year, and the low pace will have far-reaching implications for the economy unless the government takes immediate action, economic experts have warned.

The Ministry of Planning and Investment (MoPI) reported that the national economy grew at around 4 percent in the first quarter of 2012.

The low GDP figure is in line with expectations from economists given recent unfavourable developments of the national economy, especially difficulties in construction and industrial production.

However, economic experts have raised concerns about the country’s GDP growth for the whole year.

“It is not going to be easy to achieve a 6 percent rate as set for this year if we look at the recent increase in business closures and a decline in the import of machinery and materials,” said Le Dang Doanh, a senior economist.

A report by the Ministry of Planning and Investment (MoPI) shows that in the past three months, the agro-forestry and fishery sector achieved a growth rate of 2.8 percent, the construction and industrial sector just 2.9 percent, and the services sector 5.3 percent.

The stagnant production of the construction-industrial sector, which contributes the largest proportion of revenue to the economy, is casting a shadow on the economy.

It is reported that in the past three months more than 2,200 businesses have filed for bankruptcy and approximately 9,700 others have registered for halting operations or tax payment.

“This excludes a large number of businesses running out of steam. If the status quo continues, they will not be able to fuel the economy,” said Tran Xuan Gia, former MoPI Minister.

Gia also expressed his concern that without new measures in place Vietnam is unlikely to achieve its targeted GDP growth this year.

“GDP normally grows slowly in the first quarter and increases gradually in the following quarters. An important open question is how it bounces back on fledgling support factors,” he analysed.

He said the 12-percent credit growth in 2011 is one of the biggest factors that will impact this year’s GDP growth.

His analysis is not groundless. The Vietnamese economy greatly relies on investment which has not been efficient in recent years. Meanwhile, credit growth, the backbone of the economy, reached a record low over the decade last year. It even fell 2.51 percent in the past two months, an abnormal sign for the economy.

“It is said that many businesses cannot access bank loans. I think that is not correct. What will they do with their loans in the current circumstance of the economy?” Gia questioned.

Other factors that affect growth, according to Gia, are the shrinking domestic and overseas markets that eventually generate a large amount of commodities in stock, high production costs, and a low competitive edge for Vietnamese products.

Citing the economic circumstances in 1998-1999 and 2008-2009, Gia said the year with the highest inflation rate is not the year with the lowest GDP growth, but the following year.

“The scenario will probably be repeated this year,” he forecast, adding that action should be taken to stop the economy slowing further.

Many other economic experts also expressed their concern about the country’s low economic growth, saying production is grinding to a halt and purchasing power remains low, although worries about high inflation are partly eased.

“Measures are needed to stimulate public consumption, boost production, and support businesses,” said Prof Nguyen Mai, former vice chairman of the State Committee on Cooperation and Investment.

The senior expert suggested that the government quickly survey businesses to inquire into the real situation so as to introduce financial and credit policies suitable to specific economic sectors.

Echoing Mai’s view, Gia said it is necessary to stimulate consumption targeting key sectors to support the sale of products without driving up inflation.

“Priority will be given to sectors that have high inventory; for example investment stimulation is needed in construction. However, whatever we do should not affect the ongoing public investment restructuring plan,” Gia stressed.

Economic experts reminded the Prime Minister during a March 25 consultation that immediate solutions should go along with long-term ones to avoid unwanted implications for the economy in the coming periods.